Plan terms, not state law, governed outcome of wire transfer dispute

An ERISA plan administrator did not abuse its discretion when it determined that a $2.7 million wire transfer from the participant’s account, initiated two days before the participant’s death, was a completed distribution, despite state law that could arguably have supported the opposite conclusion, the U.S. Court of Appeals in St. Louis (CA-8) has ruled. Thus, the administrator’s denial of a request for benefits from the participant’s surviving spouse was upheld.

Divorce proceedings

A participant whose accrued benefit in an employee stock ownership plan (ESOP) was about $2.7 million had filed for divorce but was still married when, on a Friday, he requested a lump-sum distribution of his accrued benefit to his trust. The funds were wired on Friday but not received by the trust until the following Monday. However, the participant had died on Sunday.
The surviving spouse submitted a claim for benefits to the ESOP. The plan administrator denied the claim because the wire transfer was completed before the participant died, thus reducing his accrued benefit to zero. The spouse filed suit under ERISA Sec. 502(a)(1)(B), alleging a wrongful denial of benefits. Applying an abuse of discretion standard, the district court upheld the plan administrator’s decision.
The appellate court also upheld the administrator’s decision. Agreeing that the abuse of discretion standard of review was appropriate in this case, it explained that an administrator does not abuse its discretion when a benefits denial is based on a reasonable interpretation of plan terms, even in situations where another interpretation is also possible.
The spouse argued that the administrator’s decision was inconsistent with Nebraska law, suggesting that a wire transfer is not complete until funds have been accepted by the transferee’s bank. But, the court explained, the terms of the plan, and not state law, controlled the outcome of the case.
The plan administrator determined that for purposes of the plan, the relevant inquiry was when funds are transferred out of the plan, not when the funds are received. The administrator reasonably explained its interpretation of the plan and offered substantial evidence when it denied the spouse’s claim.